In 2005, Mohanjit Jolly set up Draper Fisher Jurvetson’s first India office. Since then, he’s learned exactly how Western venture investors view the massive, emerging market–from startups there, to the potential for U.S. startups to sell there.

Among the many successful tech ventures he has backed and advised are: SimplyHired, which helps people find jobs where their friends work; Whitehat Security, which protects companies’ websites, apps and systems from loss of data, malware infection and cybercrime; and Cleartrip, one of the largest travel-booking sites in India.

Most recently, Jolly invested in Retrofit, a New York-based provider of high-tech health and wellness programs. Retrofit could do robust business in India, he believes, though not everybody who is successful in the U.S. could appeal to customers there.

Jolly spoke with VentureWire about what tech sells in India now, and the common misperceptions that American VCs and entrepreneurs have about doing business there.

An edited version of the conversation follows:

Why are American investors and startups interested in India today?

Investors are optimists. Many get enamored with this idea of 1.2 billion people and 400 million in a growing middle class there. And so many smartphones!

Contrarily, though, they think about when the tech ecosystem was just getting going there, and fear that Indian entrepreneurs don’t or won’t think big enough. At this point, it’s misguided to believe that Indian entrepreneurs who are going after venture capital would only want to create lifestyle businesses.

The ambition is there. Although, exits have not happened yet in numbers, so it’s hard to illustrate this reality…

Where does business innovation happen in India?

The region is still more about IT than it is about IP in many ways. Businesses can still take what works in other parts of the world and then “Indian-ize” it. I mean they can alter a familiar business model and the rest so that it works and solves problems for Indians.

A lot of inspiration comes Indian entrepreneurs who lived and worked, or studied abroad who bring it back to start their own.

Universities and institutes of higher learning are waking up to entrepreneurship, too.

Which schools should U.S. investors and entrepreneurs watch most closely?

The IITs [Indian Institutes of Technology] that are MIT-equivalent in India are very progressive, especially in Bombay, Madras and Kanpur. These are hubs of research that have significant, true intellectual property to offer.

Thanks to in-house incubators and partnerships with funds and others, you see proactive collaboration to take “shelfware,” or technology that is collecting dust, then patent and commercialize it.

The IIMs [Indian Institutes of Management] also figure into this. The IIM in Ahmedabad is a leader in incubating businesses in India, something like Y Combinator for India.

Can you offer some advice for entrepreneurs who want to do business in India?

Don’t get enamored with the numbers. Be pragmatic instead.

What are some challenges companies may face there that they would not face in the U.S.?

There are so many. This is why you need people on the ground there, if possible.

Here’s a funny one.

India, from time to time, has these things called “bandh,” in Hindi. This means a shutdown, basically. The country will actually shut down. Truckers go on strike. Taxis. Anything!

It can happen because the price of fuel increased too much, or because a movie star died. Often it happens because a politician passed away in some state, and just that state will shut down in observance.

If you have a seasonal business, and one of these roving holidays causes a shutdown for a day or a week, and you cannot move your goods, or deliver your services, then this will have a significant impact on cashflow and revenue. You need to account for this with some contingency plan, somehow.

What should investors know before they start doing deals in India, or before their portfolio companies expand there?

There’s a common mode of thinking in venture capital, that if you invest $100 million across 12 companies, four will go to zero, four will deliver one- to two-times returns. And the remaining four will deliver significant returns.

That’s what distribution is expected to look like for many early-stage funds. It’s a high-risk, high-reward point of view.

In the U.S., if you need to shut a company down–snap! You’re done inside of a week. In India, this takes 18 to 24 months as a process.

As the number of investments continues to grow–and I am guessing that 400 companies have attained venture funding in India in the last three to four years–those shutdowns could become a costly nightmare if investors are not prepared.

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